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Islamic finance revisited: conceptual and analytical issues from the perspective of conventional economics

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  • Singh, Ajit
  • Sheng, Andrew

Abstract

After a brief recent empirical sketch of Islamic finance, the paper turns to its main theoretical and conceptual purpose. It seeks to relate the concepts of Islamic and conventional finance, and to examine certain important questions which arise from the interaction between these systems. The paper is written from the perspective of conventional modern economics, as the authors are students of the latter. The paper discusses the main tenets of Islamic finance, as well as those of modern economics, including the implications of zero interest rates and those of Modigliani and Miller theorems. The most notable finding of this paper is that John Maynard Keynes’ analysis of employment, interest and money provides, inadvertently, the best rationale for some of the basic precepts of Islamic finance. The paper concludes that there is no inevitable conflict between the two systems and cooperation between them is eminently desirable and feasible.

Suggested Citation

  • Singh, Ajit & Sheng, Andrew, 2011. "Islamic finance revisited: conceptual and analytical issues from the perspective of conventional economics," MPRA Paper 39007, University Library of Munich, Germany, revised 10 Apr 2012.
    • Handle: RePEc:pra:mprapa:39007
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    References listed on IDEAS

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    1. Simon Deakin & Ajit Singh, 2009. "The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy," Chapters, in: Per-Olof Bjuggren & Dennis C. Mueller (ed.), The Modern Firm, Corporate Governance and Investment, chapter 9, Edward Elgar Publishing.
    2. Jared Rubin, 2011. "Institutions, the Rise of Commerce and the Persistence of Laws: Interest Restrictions in Islam and Christianity," Economic Journal, Royal Economic Society, vol. 121(557), pages 1310-1339, December.
    3. Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
    4. Pasquale Scaramozzino & Giancarlo Marini, 2000. "Social time preference," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(4), pages 639-645.
    5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    6. Amsden, Alice H. & Singh, Ajit, 1994. "The optimal degree of competition and dynamic efficiency in Japan and Korea," European Economic Review, Elsevier, vol. 38(3-4), pages 941-951, April.
    7. Ajit Singh, 2012. "Financial Globalization and Human Development," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 13(1), pages 135-151, February.
    8. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
    9. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
    10. Sheng,Andrew, 2009. "From Asian to Global Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521118644, September.
    11. Sheng,Andrew, 2009. "From Asian to Global Financial Crisis," Cambridge Books, Cambridge University Press, number 9780521134156, September.
    12. Ajit Singh, 2003. "Corporate governance, corporate finance and stock markets in emerging countries," Working Papers wp258, Centre for Business Research, University of Cambridge.
    13. Sheng, Andrew & Singh, Ajit, 2012. "The Challenge of Islamic Finance," MPRA Paper 53044, University Library of Munich, Germany.
    14. Klaus Gugler, 2003. "Corporate governance and investment," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 261-289.
    15. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2003. "The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries," Economic Journal, Royal Economic Society, vol. 113(491), pages 511-539, November.
    16. Chang, Ha-Joon, 2000. "The Hazard of Moral Hazard: Untangling the Asian Crisis," World Development, Elsevier, vol. 28(4), pages 775-788, April.
    17. Timur Kuran, 2011. "The Long Divergence: How Islamic Law Held Back the Middle East," Economics Books, Princeton University Press, edition 1, number 9273.
    18. Per-Olof Bjuggren & Dennis C. Mueller (ed.), 2009. "The Modern Firm, Corporate Governance and Investment," Books, Edward Elgar Publishing, number 13362, December.
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    Cited by:

    1. Zakaria Ali Aribi & Thankom Arun, 2015. "Corporate Social Responsibility and Islamic Financial Institutions (IFIs): Management Perceptions from IFIs in Bahrain," Journal of Business Ethics, Springer, vol. 129(4), pages 785-794, July.

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    More about this item

    Keywords

    Islamic Finance; Moral Hazard; Keynes; Zero Interest Rates; Usuary;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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